Fitch lifts India’s FY26 growth forecast to 6.9% on strong demand

The revision comes after Q1 data surprised on the upside.

Fitch Ratings has upgraded India’s growth outlook for FY26 to 6.9% from its earlier forecast of 6.5%, citing strong domestic demand and supportive financial conditions.

The revision comes after first-quarter data surprised on the upside, with GDP expanding 7.8 percent year-on-year in Q1FY26, up from 7.4 percent in the previous quarter.

Services output surged 9.3 percent versus 6.8 percent earlier, while private and public consumption spending were the key drivers on the demand side. Private consumption expanded at 7 percent in the April-June quarter.

The rating agency flagged risks from rising trade tensions with the US, which imposed an additional 25% tariff on imports from India in August. While Fitch expects the duty to be negotiated down eventually, it warned that uncertainty could weigh on investment sentiment.

PMI surveys and July industrial output point to continuing momentum, it noted, highlighting that the recent GST reforms effective from September are also expected to modestly boost consumer spending into FY26.

Composite PMI index, an indicator of business activity, rose to a 17-year high in August, while industrial production jumped to a four month high.

Experts have been pointing to at least a 10 bps boost to growth owing to GST cuts.

Fitch projects India’s growth to ease to 6.3 percent in FY27 and 6.2 percent in FY28. Domestic demand will remain the main driver, but the strong impulse from early FY26 is unlikely to sustain through the second half of the year, it said.

Inflation and policy backdrop

Headline inflation dropped to 1.6% in July, its lowest since 2017, helped by weak food prices and ample stockpiles. Core inflation also dipped below 4%. Fitch expects inflation to average 3.2% by end-2025 and 4.1% by end-2026.

The Reserve Bank of India is expected to cut policy rates by 25 bps toward the end of 2025, holding them steady until late-2026 before resuming hikes in 2027, the Ratings agency noted.

Fitch is yet to upgrade India’s sovereign rating. Earlier this year, S&P Global Ratings raised India’s Rating after a 18 year hiatus, citing robust economy and prudent fiscal management.